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House prices 'will fall another 25% next year'
Mira Bar-Hillel, Property Correspondent24 Oct 2008
HOUSE prices could fall by a further 25 per cent by late 2009, influential economic analysts warn today.
Experts at the Capital Economics consultancy said the coming recession will speed up the housing market "correction". In an influential report published today, the analysts poured scorn on the Government's recent bank bailout, claiming it could fail to shore up the property market.
"Our view that house prices will ultimately fall by 35 per cent or a further 25 per cent from today's prices still holds", the report said.
"However, with the economy heading for a recession lasting for at least two years, we now think that those falls could be seen by late 2009 or early 2010 a year earlier than our previous forecast."
It concludes that the UK economy will shrink by 1 per cent in 2009 and by 0.5 per cent in 2010, and that unemployment will rise by almost 1.5 million.
But Capital Economics does not think that the deeper recession will necessarily result in a deeper housing market downturn.
"Our previous forecast already factored in a significant rise in unemployment and some falls in GDP", it said.
"We expect inflation to drop rapidly, allowing interest rates to fall to 2.5 per cent next year, if not lower, which will help to prevent a larger fall in house prices.
"But the deeper recession is likely to mean that the pace of house price falls will intensify."
The experts concede that the Government's bank rescue package might help to ease the mortgage credit squeeze given time.
However, this will be outweighed by the widespread expectations of further house price falls.
Reader views (5)
Here we go again. If these guys are right then a huge section of the total UK housing market will be in negative equity. This will freeze the entire market as no one will be able to move house and virtually everybody with a mortgage will be bankrupted! Utter baloney. The fact is credit will stabilise over the next 12 to 18 months and although the recession will be tough it will end. UK interest rates are way too high and the BOE has huge scope for rates to be cut. Huge. The BOE has certainly not covered itself in glory and need to redeem themselves pronto. Slash rates aggressively! China will pick up again purely because they have so much infrastructural spending to do. This could be as early as Q1 2009. The UK housing market will recover purely because there is a structural deficit in the sheer number of dwellings required and much lower interest rates can be forced through by government which now controls huge tracts of the banking industry. The world is not coming to an end, it is merely going through a much overdue correction.
- James Ritchie, New Malden, Surrey, 24/10/2008 14:55
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Is this the same Capital Economics which predicted that house prices would tumble by 20% back in 2004/2005? Although admittedly it seems more likely now, I guess if you "predict" it for long enough, eventually it will come true
- Mcw, London, 24/10/2008 14:16
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I think it depends which way you look at it Rupert. The property price falls are bad news for some and good news for others, in particular those who weren't previously able to get onto the property ladder because of the ludicrously priced properties
- Paloma Irving, madrid, 24/10/2008 13:57
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A new headline - House Prices to go up by 25%!! The global economic situation is clearly a concern for everyone. However, these headline grabbing comments are hardly helpful to encourage some sense of stability. Housing prices relies upon supply and demand and if we consider that the Government are continually looking to encourage building on any available plot of land, this would indicate there is still demand for homes. Is there any chance of the media showing some restraint and ensuring context is given, rather than scare-mongering, in these difficult times?
- Mark, Chelmsford, 24/10/2008 13:26
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This is bad news for all of us as not only our hard earnt money goes down the drain but particularly families with new born babies or young children as they won't be able to move from the 2 bedroom flat say to a house with garden. As well as financial pressure they will also have added stress of people having to live in totally inadequate accommodation.
- Rupert, London, 24/10/2008 11:23
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